As easy funding dries up, Indian startups learn to save for rainy day

The slowdown in funding environment has seen startups re-evaluating their fund management strategies to stretch available capital a long way.Payal Ganguly | ET Bureau | April 28, 2016, 07:56 IST

After the initial euphoria of raising a substantial funding round settles down, it is time for introspection for startups.

The slowdown in funding environment has seen startups re-evaluating their fund management strategies to stretch available capital a long way.

“The day we got our funding in November, we received calls from our investors on what we were planning to do with the money.

Most of the investors insist on appointing a financial controller who can look into the accounts of a company and let us know of the funding opportunities available,” says Swati Bhargava, cofounder of CashKaro, a cashback and deals site.

The company recently appointed a financial controller on its rolls. The move towards fund management has picked up pace in the recent times.

Founders are keen on stretching the capital beyond the usual 18 to 24 month runway it covers, with help from finance controllers and in investment advisers on board, with a little push from investors.

“The plan on which investments are made is keeping in mind a certain pathway for growth. Investment of the capital in short term financial assets is not going to move the needle from cash runway perspective but it is important to smartly use the capital to generate some additional income. That said, the market is challenging right now and the ability of a business to self-sustain becomes important.

Founders have to carefully plan the spend and need to stretch the runway,” says Karthik N, CFO at Kalaari Capital. “Most of the companies we invest in usually do not have senior finance person and we help them on-board the right talent, given our credentials.”

Deepak Narayanan, cofounder of MyCFO shares a similar view, saying that the age profile of 70% of founders indicate that they need to hire an adviser for fund management.

“Other than the traditional modes of investments like fixed deposits and mutual funds, other instruments of investments, including those based on speculations in assets and securities, are typically not allowed by investors.

Even we personally advise startups to invest in low-risk options,” says Narayanan. While it is unethical to use investor money for speculative and high risk investments, term deposits yield no returns.

“Claiming tax concessions takes a complete financial year if the bulk of the money is parked in term deposits,” says Amit Agarwal of NoBrokers. The company has parked its capital in debt funds.

Apart from debt investments, government treasury bonds are a favoured instrument for these companies. Other than the working capital, to ensure liquidity, the startups use short term investment instruments.